First-Time Homebuyers Credit 2012
When 2008 started, there were signs that the housing market was in trouble. Those signs however weren’t really conveyed, nor excepted by the general public. The signs weren’t taken seriously until the end of 2008, after the stock market crashed and the economy took a nosedive, bringing with it the housing market.
There was a need to act and act fast to create a stimulus not just in the economy but in the housing market. Houses were sitting untouched, losing more value, and people were scrambling. Some were saving, afraid to make purchases. People needed an incentive to step forward, buy a house, and try to rebuild the broken housing market.
That’s when the first time home buyer tax credit was established, allowing purchases an $8,000 tax credit for buying a home. The program was meant to get the economy moving again, and have people buying houses. To meet the criteria for the first time home buy tax credit, the buyers had to be first time buyers. They also had to meet other guidelines such income requirements and have the house purchased within the set time frame for the program.
Because of it’s early success, the program was quickly extended, leading into 2011.
There were rules within the program that people needed to follow. As a single person, you could not make more than $75,000 per year to qualify. For married couples, that amount extended to $170,000 per year. The value of the house itself could not be more than $800,000 or else the tax credit wouldn’t apply. Another important note was inheritances or gifts from a member of the family. What that meant was a person could not buy their parents house and then expect to get the tax credit. The home also couldn’t be given as a gift or as part of an inheritance. In those situations, the tax credit would not be allowed to be qualified. Another important note for the credit is that the person has to be at least eighteen years old to be eligible.
The credit qualifies for homes purchased in 2008, 2009, and 2010. Because it’s success and help to the economy, there have been several pushes to get the tax credit extended once again for 2011 and into 2012, maybe even beyond. That, however, is sadly still just talk as not action has been taken. The idea is to get people into homes to help boost the banks and the local economies which will in turn help to grow the overall national economy. Without homes being occupied they quickly lose value and when a group of houses start to lose value, it harms the economy of that town and city, thus spreading.
Without the star of the first time home buyer tax credit, it would have been likely that houses would have sat on the market longer, breaking the housing market down even further. The system wasn’t a guaranteed success and it’s effects may have only been short term or minor compared to the entire global economic crisis, but it was the right decision to be made at the time and a step forward. Home ownership is an important part to the United States economy as the system of mortgages isn’t just a person and a bank but rather a series of financial transactions and interest that works all together.
The problem with the housing market was that once it started to fall, the value of homes quickly went down, going below the level that was owed on the homes. This makes the asset non-working and negative which is detrimental to banks. More so, people who were considering to purchase homes would have to consider the value of the home versus the asking price. The purpose of buying a home isn’t solely to just live in it, but rather to investment in a property that will gain value over time. Someone who purchases a home would expect to create profit in that home if and when the time came to sell the home or hand it down within their family. Once people started to lose value in their homes and their mortgages were being called for higher payments (those who were paying just interest were now required to pay interest and principle), people stopped making payments and eventually let the banks take their homes. This was essentially the whirlwind within the housing market that took it down. Those who handled mortgages were then unable to sell them to other institutions, or people, and it began to pile up. The old rule of supply and demand goes into effect here. When the supply is high and demand is low, price goes down. When the supply is low and the demand is high, the price goes up. The first time home buyers tax credit was made to create that demand for homes, thus helping to boost prices and economies.
For those who have any further questions into the first time home buyer tax credit should consult their accountant and tax person.
There was excellent news for first time home buyers in 2010 in that many were approved for a first time home buyer tax credit by the Federal Government. The Economic Stimulus Package of the Obama administration allowed for qualified first time home buyers to receive a refundable tax credit of $8000. This credit could potentially be applied to homes that were purchased in 2008, 2009, or 2010. Eligibilities guidelines varied dependent upon the year in which the home was purchased. The credit worked to reduce homeowner’s tax bill or to increase the refund depending on the tax that was owed. The IRS served to refund the credit, even if the borrower owed no taxes or if the credit came out to be more than the tax owed.
After first being introduced, the first time home buyer tax credit was originally extended to 2010 and in certain cases, all the way to 2011. All qualified home purposes through April 30, 2010 were eligible for the $8000 stimulus. This meant that borrowers needed to sign some form of contract by April 30 2010 and needed to make their home purchase by September 30, 2010.
Many had hoped that the tax credit would last until 2011. Although the credit does not still apply to all households, members of certain government employees can still apply for the credit, as they were deemed eligible for one more year. This group includes members of the military, Foreign Service and intelligence community. This tax credit extension was applicable again until April 30, 2011.
There were eligibility guidelines that governed the participation of the tax credit. However, they were seemingly generous and allowed for a good number of individuals to participate. In order to be deemed eligible, applicants had to be a first time home buyer, needed to meet certain income criteria, and the home had to be purchased within the designated time frame.
There were different ways in which to claim the tax credit, based upon the year in which the property was bought. For a purchase made in 2010, the borrower had the option to claim the credit on either their 2010 or 2009 return. For a property purchased in 2009, the borrower had the option of claiming the credit on their 2009 or 2008 return. For those purchases made in 2008 the credit should have been claimed on the 2008 return.
Because of the housing crisis and recession that has plagued the American economy in the last few years, the First Time Home Buyers Tax Credit was implemented to serve as an incentive to purchase homes and subsequently increase house prices and the economy. The eligibility guidelines for partaking in the program were generous and as such, there were a great deal of Americans who benefited from the credit and were able to take advantage of the $8000 refund.
How to Qualify for a First Time Home Buyer Tax Credit
Participating in a first time home buyer tax credit can prove to be an exceptionally sound financial decision and can serve to help new buyers with the process of buying their first home. Because of the growing unease in today’s markets and economy, government has often sought to bolster the economy by alleviating some financial strain from consumers. This tax credit serves as a means by which to help consumers while also helping to rejuvenate the economy.
There are certain qualifications that need to be met before an individual or couple is deemed eligible to participate in the tax credit program. To begin, the borrowers have to be first time home buyers which essentially means that they could not have purchased a residence or owned a home within the last 3 years. For married couples, both individuals have to be considered first time home buyers in order to qualify. The house in question also has to fit the time constraints of the designated program. For example, in using the 2010 First Time Home Buyer Tax Credit, eligible purchases needed to be made on or before April 30, 2010. This meant that some kind of binding contract had to be signed by that date and that the purchase had to be made by September 30, 2010.
There are also income limits that govern eligibility in a tax credit program. In the example of the 2010 first time home buyer tax credit an individual borrower could not make more than $75,000 annually in order to receive full benefit. A tax credit is usually reduced for those whose incomes fall between $75,000 and $95,000. For married borrowers, combined income could not exceed $170,000.
There are guidelines that prohibit certain purchases under the tax credit. For example, typically homes that cost over $800,000 are not eligible. The home will also not qualify if it was purchased for a family member, relative, or as part of an inheritance or gift. Therefore, children cannot buy a home from their parents and still qualify for the credit.
Under the 2010 Credit, borrowers have to live in their home for 3 consecutive years after purchase in order to stay eligible for the refund. If the property is vacated before 3 years or residency, all tax credit funds that were received are due back to the government. Lastly, tax credit programs for first time home buyers require that the borrower is at least 18 years of age.
A first time home buyer tax credit program has often proven worthwhile for those individuals and families that choose to participate. There are guidelines that govern participation but several families have found the program to be worth the effort and have found it to be a financially sound decision. The program seems to have helped bolster the economic climate as well as the housing market as more individuals and families choose to take part.
When the subprime mortgage market tanked in 2008 and the long-building housing bubble burst, the federal government instituted an array of bailouts, bad asset purchases and other high level maneuvers intended to shore up the economy. Banks and other mortgage lenders were gun shy, however, having felt the sting of the securities requirement of mark-to-market. That stinger is part of Sarbanes-Oxley, and requires that lenders value their holdings at current market value, rather than what they paid for the asset. Thus a lender holding a mortgage on a $500,000 house that lost half its market value was required by law to reduce the value of the asset to $250,000. The amount owed remained the same, however. If the amount owed on a $500,000 asset was $450,000, the lender still was in a positive position. When the value of that asset plummeted to $250,000 but the amount owed to the lender still was $450,000, lenders were thrown into a world of trouble that they had not bargained on having to deal with.
The bottom line result was that many recent buyers walked away from the houses that were worth much less than the amount they owed on them. Lenders greatly tightened their lending criteria. Unemployment was climbing, leading many would-be home buyers to choose to wait out the poor economic conditions. One of the federal government’s responses to try to stimulate the real estate market in general was to offer the first-time home buyer’s tax credit, beginning in 2008. The credit continued until April 2011 for some active duty service members, but expired well before that for the general public.
The credit has taken a circuitous path since 2008. At that time, it was a $7,500 credit available only to first-time buyers. As it turns out, “first time” was defined to mean the first time in a year or two. The credit was available to buyers who had not been home owners for some length of time that seemed not to be uniform across the board, but generally was 18 months to two years. The credit changed in 2009 to an $8,000 credit for all buyers, not only first-time buyers. In November 2009 it changed again, remaining at $8,000 but returning to the rather loose definition of first time buyer. From November 2009 to April 2010, the credit was reduced to $6,500 for virtually anyone who wanted to buy a home. It was extended through April 2011 for members of the U.S. military who could qualify for a loan. Only those claiming the tax credit in 2008 have to repay the credit. Beginning with properties closing in 2009, the tax credit never has to be repaid.
Homes Purchased in 2008
Home buyers who claimed the first time home buyers’ credit in 2008 had to begin repaying the credit beginning with their 2010 tax returns, those filed in 2011. Except for certain groups such as active duty service people, repayment of the $7,500 tax credit is at $500 each year for 15 years. This amounts to a 15 year tax free loan, but those fifteen $500 payments remain valid only if the home buyer remains in the house as his primary residence for all of those fifteen years.
Selling the house or retaining ownership while moving to another primary residence changes the repayment terms of the loan. If the house is sold, then the taxpayer must repay the full remaining balance of the $7,500 tax credit with his tax return for the year that the house sells. The home buyer can move out of the house to another primary residence, but if she does so within 36 months of buying the property, then she also must repay the full amount of the original tax credit that is still owed. Retaining the property but moving to another primary residence after 36 months after the closing date preserves the tax credit and allows the owner to continue to pay the annual $500 payments with each tax return until the tax credit has been fully repaid.
Homes Purchased After 2008
Beginning in January 2009, the first time buyers’ tax credit was not necessarily limited only to first time buyers, and the credit was not a flat dollar figure. Rather, it was for up to ten percent of the purchase price of the home. Homes priced at $800,000 or higher did not qualify for the credit at all. Qualifying for the tax credit was fully associated with total income, however. Those making less than $75,000 a year had the full credit available to them. Individuals making more than $75,000 but less than $125,000 could claim a reduced percentage. Individuals making more than $125,000 annually or married couples making more than $225,000 did not have access to any of the tax credit. In 2010, the IRS changed those maximum income levels from $125,000 to $145,000 for an individual, and from $225,000 to $245,000 for those who were married and filing jointly.
Unlike the original 2008 tax credit, changes in the tax credit beginning in 2009 eliminated the requirement to repay the tax credit in future years. There is no repayment required unless the home buyer sells the property within three years or ceases to use it as his primary residence within three years of purchase.
The repayment feature for homes purchased after January 1, 2009 – in other words, outside of the 2008 tax credit that really was an interest free loan, rather than a tax credit – has another wrinkle that has made it difficult for the IRS to deal with. That wrinkle deals with repayment of the tax credit that does not generally need to be repaid. If the home buyer sells the home within three years or the home ceases to be the home buyer’s primary residence within three years of closing, then the home buyer is required to repay the full amount of the tax credit received. Here is the wrinkle: the home buyer selling a post-2008 house within three years of closing may not have to repay all of the tax credit received. The IRS requires that the home buyer repay the full amount of the tax credit OR the amount of the gain on the sale of the property, if the gain realized on the sale is less than the amount of tax credit the home owner received at the time of purchase. Though this is important to buyers as home prices continue to decline and even recent buyers can find themselves under water in their home mortgages, it has created a processing nightmare for the IRS.
Other IRS issues include those who took the 2008 tax credit and want to repay more than $500 in a year. The IRS can deal with the $500 payment, but it is having difficulty dealing with a payment in any greater amount than $500.
The IRS may publish changes for the 2011 tax year. If that occurs, it will not be until later in the calendar year. Basic issues will remain unchanged, as the tax credit has now expired. All that the credit-holding home owner needs to be absolutely clear on is his closing date and if he has made payments on any first time buyer tax credit claimed in 2008.
The year 2008 saw people of US being introduced to the First-Time Homebuyer credit. The motive of this bill was to help arouse the nation’s real estate market, which was otherwise sagging continuously. Read on to find out more about this bill.Whom does First-Time Homebuyer refer to?The name is a misnomer. A first-time homebuyer doesn’t necessarily means a person who has never bought a home earlier in his life; per the definition given by government, a first-time homebuyer is a person who did not own any principal residence in last 3 years. If buyer is married then both partners should not have had any primary residence in their name in last 3 years. Now what is a primary or principal residence? The home where a tax payer lives primarily is considered to be the principal or primary residence by the government.What is the income limit? To qualify for the first time home buyer credit, the individual’s income should not be more than 75,000 dollars and for married people the limit is 150,000 dollars. What is the benefit amount that one receives?The benefit amount one receives would depend on in which year the house was purchased. If you bought your house between Jan 1, 2009 and Dec 1, 2009, you are eligible for a benefit ranging up to 8000 dollars; if the purchase date of your house was between April 1, 2008 and before Jan 1, 2009, the limit you would be eligible for would be up to 7,500 dollars. How can one claim the credit?
If it was in 2009 that you purchased your house, you are eligible to claim the credit both on 2008 & 2009 return. In order to claim the credit, one must fill in form “IRS Form 5405”. In case, you already files tax return for year 2008, you would need to use IRS Form 1040X along with form number 5405 in order to amend the return files for 2008 tax return.
A brief overview about home buyer tax credit If you recently bought a house, you may be wondering if you are eligible for tax credit for home buyers. Recent expansion of credit to a lot of buyers will be entitled to this. However, there are still some provisions that may restrict the eligibility and the amount of credit. Filing your tax return, there are several factors to consider when determining eligibility, including income and purchase price. The most important limitation of this appropriation annual income. The Purchased house before 6 November 2009, single taxpayers with annual income up to $ 75,000 and married taxpayers with annual income up to $ 150,000 filing joint return are entitled to tax credit for home buyer. Home purchased between 6thNovember 2009 and 15th April, 2010, taxpayers with annual income up to $ 125,000 and married couples with annual income up to $ 225,000 filing joint return, they get credit that means they are eligible for the home buyer Tax credit.
Maximum credit for these actions is $ 8,000. The credit equals 10% of the purchase price of the house. So buyers need to buy a house or apartment which should be worth at least $ 80,000 full advantage of this tax credit. the individuals who are under the age of 18 years are not eligible for the home buyer tax credit.
Apartment buyers tax credit was expanded recently to include home purchase before the deadline for tax returns, closing and transfer of ownership would have ended on 30 June 2010. Extension of tax credit on home buyers and repeat buyers, they all get credit. The proper Time within which the home buyers should always buy a house is between the sixth and November 15, 2009 April 2010 Home at 30 June 2010. Repeat home buyers receive a credit of up to $ 6,500 credit card which is the equivalent of more than 10% of the purchase price of a new home.
Many of us would be thinking how to apply for the Home buyer tax credit.
In general, always ask your accountant about the restrictions governing the tax credit, your accountant can better respond to these questions and many other related taxes
New housing tax credit program has the following requirements:
1. Income limits – which should be $ 125,000 for single occupancy,and $ 225,000 for married couple out of which $ 20,000 is made for Phase.
2. Maximum cost – Buying a house can not exceed $ 800,000
3. Purchase of dependents – from appropriate enforcement.
4. Against fraud at all – the buyer must purchase the document to include on their tax return.
With the exception of military personnel on active duty and some federal employees, the first-time home buyers tax credit was not extended for 2011 and was not included in president O’Bama’s recently introduced American Jobs Act to stimulate the economy in 2012.
In 2011, military personnel, with a sales agreement signed by April 30 and a closing date scheduled for September 30, are eligible to claim the $8,000 home-buyer tax credit for the 2011 tax year. This home-buyer tax credit, as those extended in 2009 and 2010, do not have to be repaid to the government, unless the home or primary residence changes ownership within the first 36 months of the home purchase.
Despite a strong lobbying effort by consumer advocacy groups, such as the National Mortgage Complaint Center, that asked Congress to restore the home-buyer tax credit in 2011 and 2012 in an effort to keep national home prices from falling further, there is nothing on the legislative horizon, from the president, the senate or the congress, indicating an interest in restoring the tax credit.
Beginning in 2008, with the first-time, home-buyers tax credit of $6,500 that had to be repaid over a maximum 15-year period and including the 2009 and 2010, tax credits of $8000 that did not have to be repaid to the government, the tax credit program had been popular with home buyers, banks and realtors.
Despite some criticism that home buyers taking advantage of the 2008 tax credit lost money on the transaction because home prices fell an additional 10 percent when the program began, an estimated 3.9 million Americans, at a cost of $27 billion to the U. S. Treasury, filed for first-time, home-buyer tax credits.
Although home prices fell after the 2008 tax credit went into effect, house prices in American appear to have bottomed and to have stabilized and some economists believe this price stabilization is the reason home buyer tax legislation has not been extended into 2011 and 2012.
Although the American Jobs Act was defeated in the senate recently, there was a provision to allow home owners, meeting undisclosed criteria, to refinance their mortgages with ultra-low interest rates.
With support from the Federal Housing Administration and Fannie Mae and Freddie Mac, this mortgage refinancing initiative would have allowed banks to ease credit and qualification standards and to enable more Americans to get below four percent interest rates on their mortgages.